Chancellor Rachel Reeves is facing accusations of "quietly hammering" British workers through stealth taxes implemented in her November budget, according to a new analysis. While avoiding direct hikes to income tax or National Insurance, the extension of a freeze on personal tax thresholds is projected to leave millions of employees financially worse off in the coming years.
The Mechanics of a 'Stealth Tax'
The core of the issue lies in the Chancellor's decision to extend the freeze on income tax and National Insurance contribution thresholds until 2031. This policy, a continuation of a measure used by previous Conservative governments, does not raise tax rates directly. Instead, as wages increase with inflation over time, more people are dragged into paying higher tax rates or start paying tax for the first time. The Treasury defends the move as "fair and necessary," stating it is expected to raise £23 billion in the 2030-31 financial year to fund priorities like reducing NHS waiting lists.
Winners and Losers: A Stark Divide
Research by the centre-right think tank, the Centre for Policy Studies (CPS), paints a stark picture of the policy's uneven impact. Using Office for Budget Responsibility forecasts, they calculate that a worker earning £50,000 today will be £505 worse off in real terms by 2031, despite their salary being forecast to rise by over £6,000.
In contrast, pensioners are shielded from this squeeze. Protected by the triple lock guarantee—which increases the state pension by the highest of inflation, earnings growth, or 2.5%—a pensioner could be at least £306 better off in real terms in 2030-31. Furthermore, if the state pension remains exempt from income tax even after surpassing the personal allowance, the gain could reach £537. Those on universal credit will also see a net benefit, with increases to the standard rate leaving someone on unemployment benefits approximately £290 better off.
Political Reactions and Historical Context
The findings have ignited political controversy. Daniel Herring, Head of Economic and Fiscal Policy at the CPS, stated: "Labour's tax policy is quietly hammering workers while protecting pensioners and benefit recipients." He emphasised that freezing allowances hits everyone, but those dragged into higher tax bands "will really suffer."
The policy represents a notable U-turn for Chancellor Reeves, who had criticised the very same tactic of freezing thresholds when used by Tory governments. In her November statement, she argued she was "asking everyone to make a contribution" to fund public services. The Treasury highlighted other supportive measures from the budget, including increases to the national living wage and a £150 energy bill rebate.
Conservative Shadow Chancellor Sir Mel Stride seized on the analysis, accusing Ms Reeves of lacking the "backbone to control spending" and declaring that "hardworking people are paying the price." The debate sets the stage for ongoing scrutiny of the government's fiscal choices as the 2031 deadline approaches.
